Circular No. 39/2011/TT-NHNN dated December 15, 2011 of the State Bank of Vietnam providing independent audit of credit institutions and foreign bank branches

THE STATE BANK OF VIETNAM

Circular No. 39/2011/TT-NHNN of December 15, 2011, providing independent audit of credit institutions and foreign bank branches

Pursuant to June 16, 2010 Law No. 46/2010/QH12 on the State Bank of Vietnam;

Pursuant to June 16, 2010 Law No. 47/2010/QH12 of June 16, 2010 on Credit Institutions;

Pursuant to March 29, 2011 Law No. 67/2011/QH12 of March 29, 2011 on Independent Audit;

Pursuant to the Government’s Decree No. 96/2008/ND-CP of August 26, 2008, defining the functions, tasks, powers and organizational structure of the State Bank of Vietnam;

The State Bank of Vietnam (the State Bank) provides independent audit of credit institutions and foreign bank branches, as follows:

Chapter I

GENERAL PROVISIONS

Article 1. Scope of regulation

This Circular provides independent audit of credit institutions and foreign bank branches.

Article 2. Subjects of application

1. Credit institutions, including:

a/ Commercial banks and cooperative banks (below referred to as banks);

b/ Non-bank credit institutions;

c/ Micro-finance institutions;

d/ People’s credit funds with total assets of VND 50 billion or more each as of  September 30 of the year preceding the audit year.

Other people’s credit funds shall be independently audited according to separate regulations of the State Bank.

2. Foreign bank branches.

3. Independent audit organizations, certified public accountants, auditors and other organizations and individuals related to independent audits of credit institutions and foreign bank branches.

4. The Central People’s Credit Fund pending transformation under the Law on Credit Institutions will be independently audited under regulations applicable to banks.

Article 3. Interpretation of terms

In this Circular, the terms below are construed as follows:

1. Independent audit of credit institutions and foreign bank branches means the audit by certified public accountants or independent audit organizations of financial statements and the operation of the internal control systems of credit institutions and foreign bank branches and other audit items under audit contracts.

2. Audit of financial statements means the giving by certified public accountants or independent audit organizations of opinions on the truthfulness and reasonability in material aspects of financial statements of credit institutions and foreign bank branches according to audit standards.

3. Audit of the operation of the internal control systems means the giving by certified public accountants or independent audit organizations of opinions to evaluate the observance of the State Bank’s guidance on the building and implementation of the internal control systems and effectiveness of operation of these systems.

4. Financial statements of credit institutions include financial statements of legal-person credit institutions or consolidated financial statements of credit institutions, for credit institutions subject to consolidation under law.

5. Internal control system is the combination of internal mechanisms, policies, processes and regulations and organizational structure of a credit institution or foreign bank branch which have been developed under the State Bank’s guidance and organized to assure prevention, detection and timely handling of risks and meet set requirements.

6. Independent audit organization is an audit enterprise or foreign audit enterprise branch in Vietnam.

7. List of unqualified audit organizations is the list published by the State Bank of independent audit organizations that are ineligible to independently audit credit institutions and foreign bank branches.

Article 4. Scope of audit

1. Annually, credit institutions and foreign bank branches shall select independent audit organizations under this Circular to independently audit:

a/ Their financial statements;

b/ The operation of their internal control systems.

2. The State Bank may request credit institutions to use one or some independent audit services when finding it necessary in the following cases:

a/ A credit institution is at risk of being placed under special control;

b/ A credit institution is considered for ending the period of special control;

c/ A credit institution is re-organized under Article 153 of the Law on Credit Institutions;

d/ Other cases provided by law.

3. The audit of semi-annual financial statements, finalization reports of completed projects and other to-be-audited matters (if any) of credit institutions and foreign bank branches complies with relevant applicable laws.

Article 5. Encouragement of audit

The State Bank encourages credit institutions and foreign bank branches to use independent audit services to audit their restrictions in order to assure safety in their operations.

Chapter II

SPECIFIC PROVISIONS

Article 6. Time of selection of independent audit organizations

1. Before the end of a fiscal year, a credit institution or foreign bank branch shall select an independent audit organization under this Circular to audit its financial statements and the operation of the internal control system for the subsequent year.

2. In case the selected independent audit organization is on the State Bank-published list of unqualified audit organizations for the subsequent year, a credit institution or foreign bank branch shall select another one meeting the conditions provided in Articles 11 and 12 of this Circular for replacement. The time limit for selecting a replacement organization is 30 days counting from the date the State Bank publishes the said list.

Article 7. Competence to select independent audit organizations

1. For a credit institution being a limited liability company, the Members’ Council shall decide to select an independent audit organization.

2. For a credit institution being a joint-stock company, the Shareholders’ General Meeting shall decide or authorize the Board of Directors to decide (if so provided in the charter of the credit institution) to select an independent audit organization.

3. For a credit institution being a cooperative, the members’ conference shall decide or authorize the Management Board to decide (if so provided by the charter of the credit institution) to select an independent audit organization.

4. For a foreign bank branch, the director general (director) shall decide to select an independent audit organization.

Article 8. Contents of independent audit

1. Independent audit of financial statements of a credit institution or foreign bank branch is audit of:

a/ Accounting balance sheet;

b/ Business result report;

c/ Cash flow report;

d/ Explanatory notes on financial statements.

2. Independent audit of the operation of the internal control system of a credit institution or foreign bank branch covers:

a/ Audit of compliance with current laws, regulations of the State Bank on the internal control system;

b/ Audit of operation of the internal control system to ensure the following requirements:

- Effectiveness and safety in operation; safe and effective protection, management and use of assets and resources;

- The system of truthful, reasonable, complete and timely financial information and management information.

Article 9. Opinions of independent audit

1. Based on audit results, certified public accountants and independent audit organizations shall give opinions under Clause 1, Article 48 of the Law on Independent Audit.

2. In case the audit report has an exception, the credit institution or foreign bank branch concerned shall undergo a re-audit.

3. Within 30 days after receiving an audit report with an exception, the credit institution or foreign bank branch shall select another independent audit organization that meet all the conditions provided in Articles 11 and 12 of this Circular to re-audit the contents related to the exception expressed in the audit report.

4. Within 90 days after receiving an audit report with an exception, the credit institution or foreign bank branch concerned shall submit directly or by post the re-audit result to the State Bank for reporting.

Article 10. Results of independent audit

1. The result of independent audit of a credit institution or foreign ban branch covers:

a/ Audit report;

b/ Management letter and related documents and evidence.

2. The audit report regarding financial statements of a credit institution or foreign bank branch must comply with the law on independent audit, accounting and audit standards of Vietnam and other relevant laws,

The audit report regarding the operation of the internal control system of a credit institution or foreign bank branch must evaluate the compliance with the current law and the guidance of the State Bank in the building and operation of the internal control system and evaluate the effectiveness of this system in the prevention, detection and timely handling of risks, and other objectives of the credit institution or foreign bank branch.

3. The management letter must reflect specific matters and events in the audit process, including the practical situation, possibility of risks, recommendations of the auditor and opinions of managers of the credit institution or foreign bank branch related to these events. A management letter must contain at least the following contents:

a/ The general approach and scope of the audit and additional requirements;

b/ Evaluation of changes in important policies and practices related to the financial statements and the internal control system of the credit institution or foreign bank branch;

c/ Risks that may have material impacts on the financial statements and the internal control system of the credit institution or foreign bank branch;

d/ Adjustment proposals of the independent audit organization and the certified public accountant concerning matters and events that have had or may have material impacts on the financial statements and the internal control system of the credit institution or foreign bank branch;

e/ Opinions divergent from those of managers and executives of the credit institution or foreign bank branch on matters that may have major impacts on the financial statements and the internal control system of the credit institution or foreign bank branch or on opinions of the certified public accountant and independent audit organization. The certified public accountant and the independent audit organization shall clearly state how these divergent opinions have been handled and the level of impact of the issue;

f/ Other issues agreed upon in the audit contract.

Article 11. Conditions on independent audit organizations to audit banks, non-bank credit institutions and foreign bank branches

1. Having been established and engaged in audit activities in Vietnam for at least 3 years;

2. Having equity capital and allocated capital of VND 10 billion or more;

3. Having 10 or more certified public accountants;

4. Having 5 or more certified public accountants to audit a single bank, non-bank credit institution or foreign bank branch, of whom at least three have 2 or more years’ audit experience in the financial and banking field;

5. The certified public accountants and representative of the independent audit organization participating in auditing a bank, non-bank credit institution or foreign bank branch meeting all criteria specified in Article 13 of this Circular;

6. Having no relations of bond and asset purchase, capital contribution, joint venture or share purchase with the audited bank, non-bank credit institution or foreign bank branch;

7. Being other than a client provided with credit and other services under preferential terms by the audited bank, non-bank credit institution or foreign bank branch;

8. Not having audited the to-be-audited bank, non-bank credit institution or foreign bank branch for five consecutive years preceding the year of audit;

9. Not having valued the assets, provided management, financial or risk management consultancy for the to-be-audited bank, non-bank credit institution or foreign bank branch in the year preceding the year of audit;

10. Not having been handled for violations of the law on independent audit during two years preceding the year of audit;

11. Not being on the State Bank-published list of unqualified audit organizations;

12. Not falling in cases they may not conduct audit specified in Article 30 of the Law on Independent Audit;

13. Complying other requirements on independent audit provided in guiding documents of the Law on Independent Audit.

Article 12. Conditions on independent audit organizations to audit micro-finance institutions and people’s credit funds

1. Certified public accountants and representatives of independent audit organizations participating in auditing micro-finance institutions and people’s credit funds must meet all criteria specified in Article 13 of this Circular;

2. Not being on the State Bank-published list of unqualified audit organizations;

3. Not falling in cases they many not conduct audit specified in Article 30 of the Law on Independent Audit;

4. Meeting other requirements on independent audit provided in guiding documents of the Law on Independent Audit.

Article 13. Criteria of certified public accountants and representatives of independent audit organizations participating in auditing credit institutions and foreign bank branches

1. Possessing an audit practicing registration certificate issued by the Ministry of Finance;

2. Vietnamese certified public accountants must have at least 2 years’ audit experience after the date of being granted an audit practicing registration certificate;

3. Foreign certified public accountants must have at least 2 years’ audit experience in Vietnam;

4. Being other than a client provided with credit and other services under preferential terms by the to-be-audited bank, non-bank credit institution or foreign bank branch;

5. Not having been handled for violations of the law on independent audit during two years preceding the year of audit;

6. Not falling into cases they many not conduct audit specified in Article 19 of the Law on Independent Audit;

7. Meeting other requirements on independent audit provided in guiding documents of the Law on Independent Audit.

Article 14. Responsibilities of independent audit organizations and certified public accountants participating in auditing credit institutions and foreign bank branches

1. To fully comply with Articles 18 and 29 of the Law on Independent Audit and other relevant regulations on independent audit.

2. To take responsibility for the completeness, accuracy and timeliness of information provided to credit institutions and foreign bank branches in the process of selecting independent audit organizations.

3. To understand and comply with relevant laws on financial statements and the operation of credit institutions and foreign bank branches.

4. To explain or provide information and data relating to auditing activities at the request of the State Bank.

5. In the course of auditing, if detecting the audited credit institution or foreign bank branch fails to comply with relevant laws on the scope of audit, to notify and propose the credit institution or foreign bank branch to prevent, remedy and handle wrongdoings; to write opinions in the audit report or management letter as required in Clauses 2 and 3, Article 10 of this Circular.

6. After releasing the audit report, if having any doubts or detecting the audited credit institution or foreign bank branch commits material wrongdoings due to its non-compliance with relevant laws and regulations on the scope of audit, the independent audit organization shall carry out procedures to notify them to the audited unit and third parties according to Vietnamese audit standards and to the State Bank.

Article 15. Responsibilities of credit institutions and foreign bank branches

1. To select independent audit organizations under this Circular.

2. Within 30 days after selecting an independent audit organization to submit directly or by post a written notice of the selected independent audit organization to the State Bank according to the following regulations:

a/ A credit institution (excluding people’s credit funds) or a foreign bank branch shall send a notice to the State Bank (the Bank Inspection and Supervision Agency) and another to the State Bank branch of the province or centrally run city (provincial-level State Bank branch) in which the credit institution or foreign bank branch is based;

b/ A people’s credit fund shall send a notice to the provincial-level State Bank branch of the locality in which it is based.

3. To fulfill all obligations specified in Article 39 of the Law on Independent Audit and other current regulations on independent audit.

4. Within 90 days from the end of a fiscal year, to submit directly or by post the audit result to the State Bank according to Point a or b, Clause 2 of this Article.

5. To be re-audited in case the audit report has an exception, to submit directly or by post the re-audit result to the State Bank according to Point a or b, Clause 2 of this Article.

6. To promptly report, explain and propose to the State Bank for consideration and settlement under law the following cases:

a/ Failing to send the independent audit result according to prescribed deadline;

b/ A conflict or dispute arising over the independent audit result.

7. To disclose financial information according to current regulations.

Article 16. Responsibilities of State Bank branches in provinces and cities in which credit institutions are based

1. Within 30 days after receiving the independent audit or re-audit result of a credit institution or foreign bank branch based in its locality, the provincial-level State Bank branch shall send a report to the State Bank Governor (via the Bank Inspection and Supervision Agency) on:

a/ Analysis, evaluation and handling of the independent audit or re-audit result of the credit institution (excluding the people’s credit fund) or foreign bank branch based in its locality;

b/ Inclusion of an independent audit organization in the list of unqualified audit organizations;

c/ Request for the credit institution to use one of several independent audit services under Clause 2, Article 4 of this Circular.

2. To analyze, evaluate and handle the independent audit or re-audit result of the people’s credit fund based in its locality.

3. To report and make prompt proposals to the State Bank Governor (via the Bank Inspection and Supervision Agency) for handling cases specified in Clause 6, Article 15 of this Circular.

4. To inspect and examine the implementation of the provisions of this Circular and handle according to their competence or propose to the State Bank Governor (via the Bank Inspection and Supervision Agency) to handle credit institutions and foreign bank branches that violate the provisions of this Circular and other relevant regulations on independent audit.

Article 17. Responsibilities of the bank inspection and supervision agency

1. To summarize, evaluate and handle reports of provincial-level State Bank branches stated in Clauses 1 and 3, Article 16 of this Circular.

2. To analyze, evaluate and propose the handling of independent audit results of credit institutions and foreign bank branches.

3. To report and propose to the State Bank Governor for consideration and settlement cases specified in Clause 6, Article 15 of this Circular and request credit institutions to use one or some independent audit services under Clause 2, Article 4 of this Circular.

4. To inspect and examine the implementation of this Circular and handle according to its competence or propose the State Bank Governor to handle credit institutions and foreign bank branches that violate the provisions of this Circular and other provisions of the law on independent audit.

5. Before June 30 every year, to report to the State Bank Governor for consideration and publishing the list of unqualified audit organizations.

6. To give expert opinions in the monetary and banking field in audit reports and management letters of credit institutions and foreign bank branches at the request of law enforcement bodies.

Article 18. Resolution of disputes over independent audit

The resolution of disputes related to independent audit of credit institutions and foreign bank branches complies with the Law on Independent Audit and relevant laws.

Chapter III

IMPLEMENTATION PROVISIONS

Article 19. Effect

1. This Circular takes effect on January 1, 2012.

2. The State Bank Governor’s Decision No. 121/2005/QD-NHNN of February 2, 2005, promulgating the Regulation on independent audit of credit institutions ceases to be effective on the effective date of this Circular.

3. Audit contracts signed before the effective date of this Circular continue to be performed according to signed agreements.

Article 20. Organization of implementation

The chief of the Office, the bank inspection and supervision chief inspector, heads of units under the State Bank, directors of provincial-level State Bank branches, chairmen of Boards of Directors or Members’ Councils, directors general (directors) of credit institutions and foreign bank branches; independent audit organizations, certified public accountants, auditors and related organizations and individuals shall implement this Circular.-

For the Governor of the State Bank
Deputy Governor
TRAN MINH TUAN